Property Income

Property Income

Property Income
If you are receiving property income outside a company, you must include this on your self-assessment tax return. If you still need to register for self-assessment, you must do this before October, following the end of the 5 April tax year you first received property income.

Types of property income
There are three main types of property income which have different tax treatments:
1. Residential properties
2. Furnished holiday lets
3. Commercial properties

Residential properties
This is the most common, with tenants typically renting for months or years.
Some key points are:
a) Taxed as property income at your marginal rate. No NIC is payable
b) Mortgage interest added back, and relief is given as a 20% credit if there is tax due. This means rental income covered with personal allowance will have finance costs carried forward. Higher-rate taxpayers only get basic rate relief
c) Capital allowances are denied, and relief is only given on the sale of the property
d) Not allowable for pensionable earnings
e) Joint owned property with a spouse is always taxed 50:50 – regardless of capital input. A form 17 can be submitted with evidence of actual ownership to HMRC to be otherwise taxed on actual ownership. Date applies from form/maximum of 60 days from the date received by HMRC
f) Property income allowance if expenses below £1k (1 claim per tax return, not property)
g) £7,500 rent-a-room relief available instead of expenses if you let furnished rooms in your home. This will be split if the property is joint owned.
h) Can be done on a cash or accruals basis if rent is paid in advance
i) Subject to 28% capital gains tax (24% from 6 April 2024) and 18% for any remaining basic rate band on any gain on sale. 

VAT on residential properties
Residential properties are exempt from VAT.


Furnished Holiday Lets - abolished from 06.04.25
Please note that this advice only applies to the tax year ending 05 April 2025.
Unlike residential lets, the letting period is normally measured in days. However, many Airbnb properties that may otherwise be considered to be residential lets may qualify as FHL if they are not lived in by their owners and otherwise qualify for the attractive rent-a-room scheme. Outside of this, FHL has more favourable tax treatments than residential lettings. If you are letting your property for less than a month at a time, it may qualify as an FHL if it is available to let 210 days a year and you let it for at least 105 days a year.

Some key points are:
a) Taxed as property income, and therefore no NIC is levied on profits
b) Mortgage interest and charges are tax deductible in full
c) Treated as a trade for capital allowances
d) Profits are deemed relevant earnings for pensionable contributions
e) Expenditure is restricted if the owner or their family has use of a holiday home
f) Losses are ringfenced to FHL and cannot be offset against other property income
g) Business Asset Disposal Relief is available on any capital gains on sale – which restricts capital gains tax to just 10% instead of up to 28%
h) If joint owned you may split the profits in any ratio you wish (not automatically 50:50 as with residential properties above).

VAT on FHL
Unfortunately, if gross receipts exceed £90,000, VAT registration will be compulsory.


Commercial properties
Commercial property income is typically for business units, shops etc.
Some key points are:
a) Taxed as property income at your marginal rate. No NIC is levied on profits
b) Mortgage interest and charges are tax deductible in full
c) Treated as a trade for capital allowances
d) Business Asset Disposal Relief is available on any capital gains on sale – which restricts capital gains tax to just 10%

VAT on commercial properties
VAT is not compulsory on commercial lets if receipts are below the threshold of £90,000. Still, unlike most lets from residential property or FHL, many companies letting commercial property will be VAT registered themselves and, therefore, may be able to reclaim any VAT charged.

Further information
Please see our article here for more information on the taxation of property and allowable expenses.

Please see our article here if you are a higher-rate taxpayer considering investing in property via a company.


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